The October PPI inflation data plunged sharply as the headline index dropped 2.8% M/M, while the consensus was looking for a decline of 1.9% M/M. On a yearly basis, producer prices came out at 5.2% Y/Y, after 8.7% Y/Y in September. Excluding food and energy, PPI rose 0.4% M/M, to 4.4% Y/Y, while only a slight increase (0.1% M/M) was expected. This indicates that most of the sharp drop in inflation was due to lower energy and food prices. Most of the increase in core PPI was due to higher prices for capital goods (0.5% M/M) with light trucks gaining 2.6% M/M, railroad equipment up 3.1% M/M agricultural machinery was up 1.1% M/M and civilian aircraft 1.0% M/M higher. The increase for light trucks was due to the start of a new model year. Overall, producer prices plunged sharply due to lower food and energy prices, while core PPI was still rising and reached its highest level since 1989. Inflation will continue to fall in the coming months and we also expect core PPI to come down from its peak.
The NAHB housing market index dropped from 14 in October to 9 in November, while the consensus was seeking for signs of stabilization. The index reached its lowest level since January 1985 as increased tensions in financial markets, rising unemployment and uncertainty about the economic outlook make home builders more pessimistic.
Other: Inflation falls back from its peak reached in September
In the UK, CPI dropped by 0.2% M/M in October, while a slight increase was expected. On a yearly basis, CPI fell from 5.2% Y/Y to 4.5% Y/Y in October. Looking at the details, transport (-2.2% M/M), household (-1.0% M/M), clothing and footwear (- 0.6% M/M) and recreation (-0.4% M/M) showed significant declines, while education (6.2 % M/M) rose sharply. Also core CPI showed an unexpected decline (1.9% M/M from 2.2% M/M). The BoE inflation report indicated earlier that inflation will fall back sharply in the coming months and even risks undershooting the target in the medium term.
